Wealth International, Limited (trustprofessionals.com) : Where There’s W.I.L., There’s A Way

W.I.L. Offshore News Digest :: August 2009, Part 3

This Week’s Entries :


The list of candidates will not be empty for long.

A flury of recent agreements between OECD black list-threated offshore financial centers and OECD members has resulted in the black list being empty ... temporarily. Undoubtedly the OECD will gradually increase the number of required bilateral agreements and make the criteria for white list inclusion more stringent. Thus the black list will never long be short of candidates, even if it remains formally empty.

As mentioned in this article by German Lawyer and tax advisor Dr. Ulrich Eder, “offshore” jurisdications such as Hong Kong and Delaware, “with an overpowering empire in the background,” do not have much to worry about. Small Caribbean countries are another matter.

Exactly how bad is life for a country on the black list? The list of OECD sanctions given by Dr. Eder leave the clear impression that life gets more costly and probably more difficult. OECD entities dealing with black-listed jurisdictions may be subject to punative additional taxes, audits and other countermeasures.

After all the hype about tax havens and offshore banking secrecy, the black list is no more. Gone forever or just the calm before the Caribbean storm?

The infamous black list of uncooperative tax havens, maintained by the Organisation for Economic Cooperation and Development (OECD) and dominated by Caribbean jurisdictions is empty now. In an increasingly borderless world there seems to be no rogue tax regime any more. But this is just a temporary silence and definitely not forever.

Therefore, it is interesting to know which Caribbean countries will find themselves on this list shortly and which affect it has if you live and invest in a blacklisted country. Practical aspects of the past, the present and the future are discussed in the following.

A Short History of the Black List

Founded in the post-second world war area, it took the OECD more than 50 years before it listed 15 jurisdictions as tax havens according to criteria it had established by itself. This first list, dated from the year 2000, covered countries from Bermudas over to the Cayman Islands, and on to Saint Vincent and the Grenadines. OECD said it had investigated 31 countries, before drawing up the list.

In 2000 a OECD report named and shamed 47 “preferential tax regimes” and 35 tax havens. These listed countries have been threatened by the OECD with “defensive measures” if they fail to “eliminate harmful features of their regimes.” In the following years most of the listed company did make commitments to transparency and exchange of information. Among these are Barbados and the U.S. Virgin Islands.

Seven jurisdictions (Andorra, Liechtenstein, Liberia, Monaco, Marshall Islands, Nauru and Vanuatu) resisted all requests and threads – this does not include any Caribbean jurisdiction. In April 2002, these Seven Samurai were formally identified by the OECD as uncooperative and, as a result, the list of seven went black.

This was called the high-water mark of the anti-offshore initiative. However, things were going to get worse before they got better, if they even get better at all.

All of these jurisdictions subsequently have been involved in negotiations to make some or full commitments. Costa Rica has been one of the last jurisdictions that escaped the list. Based on these statements the OECD decided in May 2009 to remove all seven from the black list.

As a result, the black list of uncooperative tax havens is currently empty. You may call it the world’s shortest black list now. All 84 jurisdictions on the radar screen of the OECD agreed to implement the standard.

Territories as Delaware and Hong Kong, with an overpowering empire in the background, can disregard the OECD principles without the threat of being added to the black list. The OECD will not quarrel with the big boys.

A grey list (countries that supposedly lack fiscal transparency but have committed to change) includes Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Montserrat, Netherland Antilles, St. Kitts and Nevis St. Lucia, Saint Vincent and the Grenadines, as well as the Turks and Caicos Islands.

Not officially disclosed by the OECD, there is even a white list. Territories as Delaware and Hong Kong, with an overpowering empire in the background, can disregard the OECD principles without the threat of being added to the black list. The OECD will not quarrel with the big boys. Any Caribbean location, even the Cayman Isles, will not benefit from this privilege.

Who Will Qualify for the Black List

Low-tax or no-tax countries will qualify as uncooperative from the OECD point of view, if they do not meet specific standards of transparency and effective exchange of information.

The OECD regularly updates which tax havens and other jurisdictions implemented the standards and which are in delay, although they agreed to the standards. The later ones will be good candidates for a new black list.

Therefore, it is of great interest, how these so-called “internationally agreed tax standards” are defined. Based on the publications of the OECD a very broad and aggressive definition is used. It is the “full exchange of information on request in all tax matters without regard to a domestic tax interest requirement or bank secrecy for tax purposes.”

As a rule of thumb the OECD expects each country to sign at least 12 information exchange agreements with non-tax-havens and its willingness to sign even more in the future.

The interpretation of this definition will definitely leave a gray area. As a rule of thumb the OECD expects each country to sign at least 12 information exchange agreements with non-tax-havens and its willingness to sign even more in the future.

Tax information exchange is in many cases implemented in the double tax treaties (e.g., “the competent authorities of the contracting states shall exchange such information as is necessary for carrying out the provisions of this treaty or of the domestic laws of the contracting states.”) However, they can be agreed separately or in a multilateral contract as well.

The exchange of information as requested by the OECD standards will not cover only individuals but also companies and trusts. As a result its shareholders and beneficial owners will have to be disclosed as well.

Everything anticipated to be relevant has to be disclosed. Although the OECD stresses its respect for taxpayers’ rights, this concept is weakly implemented. There will be no effective protection and defense against fishing expeditions of high-tax jurisdictions abroad in the Caribbean.

What the Future Will Bring

The OECD published in April 2002 a model agreement on exchange of information on tax matters. 116 clauses – included in 16 articles – cover, above all, the exchange of information upon request, the possibility of declining a request, confidentiality and costs, as well as procedural questions. A number of bilateral agreements have been based on this draft.

Jurisdictions that accept the numbers game of at least 12 signed tax information exchange agreements might have a good start to sign bilateral agreements with seven Nordic economies – Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden – on exchange of information for tax purposes. Seven of 12 is half the battle.

Living Your Life in a Blacklisted Country

There is no doubt that the OECD will not rest or settle before getting the full commitments of the gray listed jurisdictions. Instead they will monitor to achieve a rapid and effective implementation of the standard. This will include requests for legislative changes and the negotiation of specific bilateral agreements.

The Bahamas, the Cayman Islands, St. Kitts and Nevis, and some Pacific islands like Samoa, may be the hottest candidates for a new black list. They are already in the public focus of the European Union and may be impeached first for not meeting their pledge to fight tax evasion. On the other side, Aruba, Bermuda and Netherlands Antilles are praised for making progress in negotiating exchange of information agreements.

Very recently Bermuda and the Netherlands signed a bilateral agreement for the exchange of information for tax purposes, bringing to 12 the number of such agreements that Bermuda has entered into and thereby crossing the threshold for being considered to have substantially implemented the internationally agreed standard in this area.

Is being on the black list a badge of honor or shame?

Anyway, it is clearly foreseeable that there will be a shift from the gray list back to the black list soon. Is this a list of shame or a list of honor? The jury is still out. But what is the disadvantage for future blacklisted countries, its residents and investors?

The OECD itself has no power to implement sanctions against any blacklisted country. However, its member states have already opened and shown their toolbox of countermeasures. Basically three types of measures can be expected, and had already been discussed by the OECD in 1998:
The First: the tax environment for blacklisted countries will be downgraded by changes in the domestic tax laws of OECD member states. Any cross-border-payments to blacklisted countries may be subject to a withholding tax. Exemptions, deductions and allowances might not be accepted tax-wise. Any investments may be taxed in the shareholders’ country as so-called controlled foreign companies. Even punitive tax rates are possible to discriminate and discipline blacklisted countries.

The Second: the toolbox of countermeasures contains a review, repeal and/or refusal of bilateral tax treaties. Existing favorable tax treaties without efficient tax information exchange clauses may be terminated. This will result in an effective double taxation of profits.

The Third: this category covers aggressive tax audits and non-tax measures like an embargo, the cancellation of free trade agreements or punitive tariffs and customs. In addition, a new legislation might discourage international financial institutions from having funds in these jurisdictions. Although, as of today, financial institutions in some jurisdictions need to apply enhanced scrutiny to transactions involving blacklisted countries.
Still a Positive Outlook?

Statements like “After all the hype about tax havens and offshore banking secrecy, the black list is no more” are more than optimistic. They are wrong. The black list mechanisms are still in place, the black list empty only on a temporary basis.

The OECD, describes itself as an “organization helping governments tackle the economic, social and governance challenges of a globalized economy.” It has 30 member countries and active relationships with 70 other countries. But it is in essence a “talk shop” – a forum to discuss economic policy issues as well as environmental agricultural and energy concerns. It has no supranational power at all.

There are still voices clearly challenging the statement of the Paris-based bureaucracy. They mention that it is unfair for low-tax countries to attract jobs, capital and entrepreneurial talent away from high-tax countries.

“Tax competition is a liberalizing force in the world economy, something that should be celebrated rather than persecuted,” is the message of well-known economics around the world. There are good reasons that the tax cartel anxiously awaited by the OECD will eventually go the way of the dinosaur. In the meantime, there are approved ways and means to restrict and circumvent an unfair attempt to destroy a level playing field in competitive markets.


Believing In and Living the Dream

In what could just as well be billed as part 2 of a story we posted in May, Rev. Macarena Rose continues to share her experience of expatriating to Belize. She moved there 6 years ago after raising 8 children in Florida. The Rev. Rose She is the founder of Rainforest Realty, provider of trustworthy real estate brokerage services for Belize. She invites people with questions about moving to Belize to contact her.

Hopefully you all remember my story ... the I introduced to you a few months ago about the single mom, with teenage daughter and limited assets who moved from Florida, USA to Belize, Central America. We have been here for six years now and from the start it has been an incredible experience – both personally and professionally.

A lot of people want to make that move and follow that dream, especially the baby boomer generation in America, and before you do it is always nice to hear some advice and some of the experiences from others you have travelled that road before you. What follows are some more thoughts about the expat experience I thought might interest you.

Expat Expenditures

There are many reasons why an individual, couple or group might choose to move abroad and establish a new life in a different culture. One that is very understandable, and to which we can all relate in these uncertain economic times, is financial.

Indeed, recently, there has been a sudden exodus from “first world” to foreign countries for this reason. It makes sense, because in the end, it saves cents! For instance, distressed farmers in the American Midwest are finding they can take their high tech agricultural skills to inexpensive acreage abroad (Argentina) and fare very well indeed.

Thankfully, it is possible to stretch those shrinking American dollars, pensions and 401(k)s much further in many foreign lands – whoopee! Being able to reduce financial stress is always a huge plus which lowers our blood pressure and adds to our quality of life. And hopefully makes us much happier people.

But please remember – and as I always repeat over and over again – contact me with those questions!! You must do your homework about any such move!

Interesting Intangibles

There are usually many factors besides financial concerns at play in a decision to move abroad and some of these are intangible. Those who are familiar with my own story know that I felt a compelling call to return to Belize after my initial visit. The drive to start a new life there was a feeling over which I had no control – it took hold very strongly and could not be ignored. The result was I pulled up stakes from a very comfortable life in Florida, packed and moved into a new country and then a new business enterprise. Both continue to excite and reward me every single day and for that I give the greatest thanks.

Expat Inspiration

Somewhere inside me, the adventurous gene popped up and took over and off I went. Of course, I considered every possibility and spent many sleepless nights giving thought to such a drastic change in lifestyle ... and still I went. I think that the spirit of adventure lives in each of us and sometimes it gets called out. If we are lucky and the timing and circumstances are right – we make it happen! Listen to that inner voice – hear what it says and give it some credence.

Here is my philosophy ---- JUST DO IT!

Expat Pacing

I am always interested in the expat experiences of others. In talking with various people, I have heard many stories of why they relocated – including leaving the isolation and alienation of American life behind.

Sometimes even expats are surprised how they are affected by the slower pace to be found in other cultures. We all read constantly how Americans are stressed to the max and eating dinner out of their refrigerators or grabbing high fat burgers at fast food chains – all due, supposedly, to both a lack of time and energy to prepare a meal and sit down to eat (and digest) it. We all look at pictures of the past that show families gathered around the dinner table and drool. We wonder how on earth they did it. Heart attacks and disease are far too common in modern life. Much of it has to do with stress and pressure, but not so here in Belize.

While those on American shores are watching TV talk shows about feeling isolated and alone in modern society, I have been kicking back at the beach with friends and loving life!

Oh, yes, and working hard every day, too. But here in Belize, there is a different context for life and it does not leave out the very human parts. The pace is not so relentlessly demanding and grinding and certainly not as overpowering. There is an understanding that other things matter too, such as one’s family and community. In Belize these are priorities and felt to be an important aspect of life that requires time and energy in order to build connections.

So, while Americans are overeating themselves into obesity, diabetes and chronic health problems trying to cope with worries and stress, we here in Belize are strolling the beaches, diving, caving and appreciating the beauties of Mother Nature!

Smell the Roses – Or Rather, the Wild Flowers

In today’s first world societies, many lament there is no time to “stop and smell the roses.” We all know the stories about children being over-programmed and growing up with their cell phones as the means to keep in touch with their parents.

You will not find that scenario in Belize. Here it makes perfect sense in the context of life and living to enjoy the gorgeous tropical flora around you. In fact, it is downright encouraged! Except you will not be smelling roses – you will be admiring the profusion of wild flowering plants that grow everywhere and never fail to soothe and delight.

Orchid Extravaganza

If you are an orchid aficionado, then Belize is your paradise. You will be astounded at all the different varieties that grow very happily here. And that includes the gorgeous Black Orchid, the national flower of Belize. It flowers year ‘round – be still my beating heart!

Perhaps your total experience with orchids is buying one at the grocery store in America like I did – and then watching it wither away. Well, here they grow wild and beautiful all over the place and thrill your senses every day. They inspire your dreams and imagination as you contemplate their exquisite forms and colors.

Orchids are magical, so go ahead, relax and revel in these stunning marvels. ... You are supposed to!

Exotic Fauna of Belize

The fauna of Belize are exotic, no doubt about it. I find it a pleasing thing to know that instead of residing in foreign zoos, native birds and animals roam wild and free here in their natural habitat.

For instance, you are not going to run into a Keel Billed Toucan every day in the States, are you! That is the national bird of Belize, and I will bet the only place you have ever seen one is in the zoo. Me, too, pre-Belize. Well, here is where they originate – in the open areas of the country, making their home in the large trees. This is home and they do not seem to mind sharing it with natives and expats. Here you can smile at their glorious multi-hued presence and contemplate the part they play in nature’s scheme of things.

And we have the tapir, is a very exotic national animal here in Belize. The tapir is native to Belize and it is on the endangered species list ... which means no hunting. Tapirs are rather distinctive looking, being related to the horse and rhinoceros. An interesting heritage, indeed! And interestingly, they are vegetarians [just like horses and rhinos].

Special Trees

There is nothing like a lush, gorgeous rainforest environment to remind you that life on earth – and in Belize – is a special gift to be cherished.

The rainforest is fabulous and wondrous and full of exotic plants and trees. My favorite tree is the native mahogany trees of Belize. They are strong, sturdy and enduring and have been prized for centuries for making furniture. Mahogany lasts on and on ... so anything made from it will be passed down from generation to generation. This highly regarded native tree is the National Tree of Belize.

Cultural Cues

Belizeans speak English as their native language and have a system of law very similar to that of the United States. So that part of acclimatization is easy.

But it gets even better! I have got some great news for you. If you have been getting sentimental and nostalgic about the good old days and hearing how once upon a time families and communities bonded together to share life’s pleasures and challenges – surprise! Oh, yes – that is the norm here in Belize. Unlike first world countries with their frantic pace (such is the culture in America, for instance) Belize has not tossed aside those traditional values of family and that lifestyle is all here waiting for you!

The Market – and I Don’t Mean Stocks and Bonds

When I first visited, I had been sitting on a veranda at Cabal Pech Village Resort in the town of San Ignacio taking in the expansive views of the mountains and downtown area. My friend Oscar, who works at the hotel, came over to ask me why I was not at “the market.” I thought this was a bit odd as I did not quite know what he meant or why I should be going there. Oh well, typical American!

Oscar explained that Saturday in San Ignacio is special – a time when the farmers and Mennonites come into the downtown area by the river to sell the fruit of their labor – their freshest and most delectable produce. It is a happy respite from typical week because people come from all the different villages to the market. There is food, flowers, music, conversation and dancing, and certainly plenty of good vibes, making for a not-to-be-missed festive air. Who could resist that?

So I hailed a taxi and off I went to see what all this fuss was about. Sure enough, just as Oscar had explained, there was a large gathering of horses and buggies, vintage pickup trucks and people on foot all calling out greetings, chatting and enjoying themselves.

I started to walk around and inhale the scents, sights and sounds – and have enjoyed the delights of this wonderful outdoor market ever since.

Marketing in Belize

When is the last time you strolled leisurely and lingeringly through an inviting town marketplace to ogle all the gorgeous fresh fruits and vegetables! Imagine not feeling so tired and drained and having the time and energy to peruse the market offerings. The grand Saturday market of San Ignacio offers a great alternative to lying exhausted in front of mindless TV shows while you consume the rest of the potato chips, ice cream, candy and cookies.

How about a superb pineapple right off the plant itself? And, it will cost you almost nothing.

Weighty Matters

With all the publicity and concern in the U.S. about obesity, here is another nugget of information that many may be surprised to hear. I was not trying, but weight just dropped off me naturally after I arrived to Belize. I figure this news alone might trigger a giant stampede to Belize!!

But it makes sense. The fresh food, fruits and seafood here are so enticing and available, and best of all – inexpensive. You eat plentifully, but healthfully and well. And, you will not find yourself standing in line at a fast food chain – because there are not any. Imagine that!

And, believe me, you will not miss it. Just glance over all the exquisite fare at the market – many of which I had never heard of. I asked a local vendor about a delicious looking fruit that looked so good. On the outside, it seemed like a cross between a cactus and artichoke. Ah, but the inside! He was spooning the brilliant fuchsia-colored fruit out of it, and I so I hurried over to try it. You will swoon – it is so yummy! It is called pithaya and it is easy to understand why it is the national fruit of Belize.

I have come to know and value this local market tradition well. The interactions that take place go far beyond buying and selling and make for a true sense of community. And by the way, I have been maintaining that weight loss ever since – with no effort!

Stayed tune for more insight, advice and experiences in Part 2.


And now for the rest of the story, from the viewpoint of an American citizen living happily and peacefully in Honduras.

Last month Carter Clews wrote, regarding the alleged coup d’état that occurred in Honduras: “Honduras is not ‘war-torn.’ It did not just have a ‘military takeover.’ And no ‘Banana Republic’ dictator has seized power. In fact, quite the opposite occurred. On Veintiocho de Junio (June 28) – a date many Hondurans are already commemorating as their own ‘Cinco de Mayo’ – the country’s Congress and Supreme Court impeached the President, removed him from power, and maintained their much-beloved democracy. It is just that simple.

Contrary to the intial statements from the D.C. talking heads, the replacement of the Honduras president was not an overthrow but a preservation of that country’s constitutional form of government. Here is the rest of the story, essentially a blow-by-blow account of what happened. Americans should be so courageous and successful in calling to account and dismissing those who violate their oaths of office.

A few weeks ago there was a constitutional change of power in Honduras; not usually an event which would cause the world to get involved in the internal government of a country, especially a country enjoying the freedom of an effective democracy.

During the early morning of June 28th, 2009, an event occurred in the small Central American country of Honduras which will become a defining time in Honduras’s history; indeed, it will become a defining moment in the definition of democracy. And because of the immediate reaction of the United States of America, it will become a defining point in time for the world to judge how the United States becomes involved in the government of other countries.

As the sun started to rise on Sunday, June 28th, 2009, a military corps, acting under direction of the Supreme Court of Honduras and the entire Congress of Honduras, entered the Presidential Palace in the capital city of Tegucigalpa and removed the President of Honduras, taking him by plane to Costa Rica, where he was discharged.

The news media and the U.S. state department immediately jumped on the following equation:

Head of state + Central America + military removal from power = coup d’état.

Armed with only these facts, most people would make the same leap to judgment. ... Unless they had the rest of the information and some understanding of the Honduran constitution, or unless they came to Honduras today and see that life is continuing the same as it was prior to these events; there are no tanks rolling down the streets, no curtailed rights or liberties.

The international press would have you believe that Honduras is in disarray. Nothing could be further from the truth. A constitutional change of government occurred, without violence; and this constitutional change has brought the people of Honduras together in defense of their constitution and their freedoms. Hondurans and foreigners, both sides of the political spectrum, stand solidly together to support HONDURAS. Tens of thousands of people have staged rallies throughout the country in support of the actions taken against the ex-president. The only violence that has occurred is when Zelaya tried to return to the country, creating a media frenzy as he asked his very few supporters to disrupt the country.

I will give you the rest of the story from the viewpoint of an American citizen living happily and peacefully in Honduras for a dozen years, and also with a chronology from a Honduran businessman, who can speak to the actions first hand.

Let us start three years ago. Mel Zelaya, candidate for one of the two main political parties, was elected President by a small majority. A rich rancher, Zelaya courted the poorer people of the country, making grand appearances by riding in on his horse, Café, wearing his trademark cowboy hat. His political objectives started to drift to the left fairly quickly and he publicly and frequently created photo shoots with political allies Hugo Chavez and the Castro Brothers.

Zelaya started making decisions which appeared to be detrimental to the stability of the country, such as overruling local law enforcement by demanding the release of people arrested for destroying government offices and burning records.

On one occasion earlier this year, he flew into the island of Roatan, on a whim, to encourage a group of protestors who were objecting to the electric company and who had managed to block the only main road on the island, effectively shutting down the island and creating havoc with the tourism industry for a week. Cruise ships detoured to other destinations and international flights were affected; people could not work. Zelaya appeared in front of the crowd, encouraging them to create civil unrest. Several of the leaders had been arrested and Zelaya commanded the police and District Attorney to release them.

The courage of the Honduran people.

This was the first time most of us on the island were exposed to the courage of the Honduran people – the local officials, who are mostly members of Zelaya’s political party, resisted the order and managed to hold most of the detainees for several days. This event was probably a significant turning point in the support Zelaya enjoyed as a democratically elected President.

One is hardpressed to imagine any local cops in the U.S. disobeying orders from the feds.

There is a long time relationship between Honduras and the United States. Over 100 U.S. businesses operate within the country, providing thousands of jobs for Hondurans. Tourism is also a major source of employment and economic stability. There is a large military base, Soto Cano, in the center of Honduras close to the town of Comayagua, with a comfortable blend of Honduran and American troops whose mission is primarily humanitarian and to exert some control of drug trafficking throughout Central America.

Honduras is also a highly desirable country for foreigners to live in and own property; there are thousands of us living throughout the country, especially in the Bay Islands, a stunningly beautiful destination in the Western Caribbean. [See this posting.] Life is relaxed and relatively inexpensive. The Honduran people are peaceful, friendly and welcoming. They are also fiercely proud of their country and their CONSTITUTION.

For the past 20-plus years, Honduras has enjoyed the freedoms associated with a stable democracy and the comfort of friendship and aid from the U.S and many other countries worldwide. The second poorest country in the region, international aid is crucial for the people of Honduras. In the last decade, huge improvements in infrastructure and quality of life are evident. Humanitarian groups come in droves to provide medical, dental, spiritual and physical care. Homes are built by volunteers, trades are taught, education is boosted and children are cared for. No one wants to lose any of this, so when Zelaya started toward a carefully chartered path to align himself with leftist leaders, people started to take notice. Rumors about missing money and illegal activities at the highest level were reported.

The democratic republic of Honduras has a similar governmental structure to the United States, with three executive branches. The following is an accurate chronology of the events which led up to the removal of Mel Zelaya from the Presidential palace, written by a Honduran businessman who lives in Tegucigalpa, and is reprinted with his permission:

The Chain of Events in the Honduras Crisis


President Zelaya passes an Executive Decree ordering a National Survey asking citizens if they would approve a Constitutional Assembly that would write and approve a new constitution. The Decree stated that the National Institute of Statistics (INE) would carry the survey out. However, he did not publish the decree in Honduras’s official newspaper called La Gaceta as required by law.

This decree violated the following articles in the Constitution: By May 27, 2009:
The National Prosecutor, the Attorney General and the Supreme Court had unanimously ruled the National Survey decree as illegal and it was ANULLED.

June 5, 2009:
President Zelaya’s lawyer appeals the ruling.

June 16, 2009:
The Appeal Court unanimously confirms that the National Survey decree is indeed illegal and therefore ANULLED.

The State Prosecutor’s Office (Ministerio Publico) informs the Armed Forces that the National Survey is illegal and therefore, the Armed Forces must not carry out its constitutionally-assigned responsibility to act as guardians of the Public Survey ballots.

The Armed Forces apply Article 323 that states that no public official, whether civil or military, can be forced to comply with an illegal order and thus refuse to carry out President Zelaya’s order to safeguard the ballots and election/survey. That same day, the State Prosecutor’s Office also advise President Zelaya and his entire cabinet of the Appeals Court ruling against the decree.

June 19, 2009:
The State Prosecutor’s Office formally advises President Zelaya, a second time, that the National Survey is illegal.

June 25th, 2009:
Only three days before his announced and illegal survey, President Zelaya issues a second presidential decree again calling for a National Survey. But this time, he goes all the way and publishes it in the Gaceta. However, he makes changes to the wording in the decree. Instead of ordering “a Public Opinion Survey,” as he had worded the previous decree, he now changes the words to read, “Public Opinion Survey Convening a Constitutional Assembly.” This changes the legal interpretation of this decree entirely, and would have allowed for an immediate Constitutional Assembly to convene and disintegrate the three powers defined in the Constitution, effectively interrupting Constitutional Order.

With the publishing of this decree in the Gaceta, President Zelaya himself kicks into motion Article 239 which states that “whomever changes or attempts to change” Article 4 (an unchangeable “petreos” article protected by Article 374) relating to the alterability of the presidential position, “will be immediately removed from public office” and lose his/her constitutional powers.

NOTE: This is very important! As soon as the decree was published, President Zelaya automatically stopped being president and became a regular citizen.

June 26, 2009:
The Courts, along with the Attorney General and the Supreme Electoral Tribunal, order the Armed Forces to confiscate all National Survey ballots and voting material that had just arrived by plane.

That same day, in blatant disregard to all court rulings, Citizen Manuel Zelaya gathers a group of protesters and proceeds to the Air Force warehouse where the ballots had been impounded. He threatens, with force, and uses human shields, risking other citizens’ lives.

Calling on Article 59, which states that the protection of “human life is the Constitution and the state’s supreme responsibility/obligation,” the Armed Forces yield to the mob and allow Citizen Zelaya and his human shields to take the ballots by force.

Immediately, the Supreme Court issues an arrest warrant for Citizen Manuel Zelaya for the crimes of (a) Attempts against the form of government, (b) Treason to the country, (c) Abuse of authority, and (d) Usurpation of functions belonging to other branches of government.

The Supreme Court orders the Armed Forces to serve this arrest warrant because according to Article 272, the Armed Forces has the constitutionally-assigned responsibility to maintain and protect the alterability of the presidential office.

June 27, 2009:
Country leaders meet intermittently throughout the day in an effort to find an alternate means of resolving the situation without recurring to an arrest that would incite unrest and possible violence within certain segments of the population. In the meantime, the Armed Forces study Citizen Zelaya’s agenda in order to determine the best moment to execute the arrest with the least risk to the lives of Citizen Zelaya and the Presidential Guards surrounding him.

June 28, 2009:
Having found no better time for the arrest, at 5:45AM, the Armed Forces capture Citizen Zelaya in his home. The arrest is successful without any injuries or deaths on both sides. Citizen Zelaya is instructed to get dressed, but wanting to be victimized, he refuses, only grabbing his passport and wallet (with the presidential palace’s credit card, by the way).

The Armed Forces decide to put Citizen Zelaya on the presidential plane and take him to Costa Rica where he is left behind. The Armed Forces and whoever else decided to expatriate Citizen Zelaya violated Article 102 which states that “no Honduran can be expatriated or surrendered to a foreign government.”

The Armed Forces is defending its decision by arguing that they again relied on Article 59 (protection of human life as supreme obligation of the state). They said that, in this case, breaking the law (Art. 102) actually saved lives since they felt that placing Citizen Zelaya in a Honduran prison would have incited violence, unrest, and possible harm to Citizen Zelaya himself. Nonetheless, the State Prosecutor’s Office has started an investigation into this crime.

Per Article 242, when the President is absent and when the Vice President is absent (or resigned in Honduras’s case), the third instance is the President of Congress. Thus, the President of Congress, Roberto Micheletti, became President of Honduras.

I have but one question that I would like to ask the international community that is so adamant about not recognizing our existing government and is so vociferous at demanding that Honduras reinstate our criminal ex-President.


What part of our Constitution would you force us to change, amend or erase so that we can reinstate Manuel Zelaya as President of Honduras without breaking the law?

Ian Merriam, Honduras

Webster’s dictionary defines a coup d’état as “The sudden, forcible overthrow of a government.” A military coup d’état would be that forcible overthrow by the military with the military taking over the running the country. Clearly, neither of these definitions apply here – at no point were the military running the government because the order was issued by the Supreme Court and the next in line to the Presidency, Roberto Micheletti, was sworn in as President. Only one man lost his job ... and, the same political party is still in power.

Webster’s also defines the single word coup as “A sudden, brilliantly successful move” ... much closer to accurate!

So, here is Honduras, a country with a strong, still in action democracy, and with the vast majority of its people supportive of the rule of law which demanded the removal of a leader who believed he was above the law, we are being condemned by international sentiment. When, in fact, Honduras has become the voice for democracy – almost unanimously, citizens are standing up to overwhelming odds to support their constitution – is there no better definition for democracy?

The Honduran people would rather give up the critical aid they receive in order to keep their democracy! Business is as usual here. Transportation into and around the country is normal, regular seasonal discounts are available to tourists, cruise ships still visit and scuba divers enjoy some of the most beautiful coral reefs in the world.

One man has disrupted the continuation of government, and continues to do so with his reckless (thank you, Hillary for recognizing it this time) actions on the Nicaraguan border.

And yet the country goes on with the business of living with almost no change, except that thousands of people have lost their means of making a living for their families because his continued showmanship. Thankfully, people throughout the world are slowly realizing that the immediate reaction was erroneous, based on media reports from networks without correspondents in Honduras?

Honduras should be held up as “The Little Country That Could” and its citizens praised for their willingness to protect what they hold most dear – their freedoms and their constitution. Who else has been willing to defend their country against the progress of communism in the face of overwhelming odds? We should be applauding their sacrifice and doing whatever we can to help instead of denouncing the country and cutting off its lifelines.

Help support Honduran democracy – come and visit us, you won’t believe your eyes!

The U.S. State Department cautions against traveling to Honduras. ... Do you have the same courage as the poor Honduran people? We are here; living normal, happy lives. ... Come and visit us, that is how you can help. Tourism and investment in Honduras is one way to give people back their livelihood, their self respect. Foreign governments interfering with the constitution of Honduras outrageous, and overblown, inaccurate reporting of the situation by an unknowledgeable media is deplorable.

I have never been so proud of the people of my adopted homeland; the courage and restraint shown throughout the country is admirable. To defend one’s constitution in a non-violent manner and to be successful in that endeavor is rare. Help support Honduran democracy – come and visit us, you won’t believe your eyes!


Settlement pierces Swiss banking secrecy and threatens to spill over to other banks.

The outcome of the long-running IRS/UBS settlement is finally partially known. Account details of about 4,450 American clients of UBS will be turned over to the IRS – quite a few but not the whole UBS American client base of 52,000.

So what does this mean for legendary Swiss banking “secrecy”? As expressed below: “Switzerland may claim its banking secrecy remains intact, but some private bankers say it is no longer a selling point for its banks.” Certainly anyone with any sense will be wary of any Swiss bank with a U.S. legal and physical presence, as was the case for UBS. Precise details of just how responsive Swiss finanicial institutions will have to be to future IRS inquiries will be published 90 days after the new U.S.-Switzerland information exchange treaty comes into force.

Now the IRS will train its guns on other Swiss banks, and the EU will probably increase its own pressure on Switzerland. The IRS is offering an amnesty of sorts to U.S. persons who come forward with foreign account details before September 23. Anyone who does not come forward and is later found out will face “much harsher punishment.”

Switzerland has agreed to reveal the names of about 4,450 wealthy American clients of UBS AG to U.S. authorities in a tax dispute settlement that pierces Swiss banking secrecy and now threatens to spill over to other banks.

The deal promises to end years of investigation and uncertainty for UBS, which announced later on Wednesday that the Swiss government was exiting the stake it had taken to aid the bank during the financial crisis.

Swiss have also agreed to process requests by the U.S. seeking information from banks besides UBS about account holders suspected of evading U.S. taxes.

With Switzerland’s famed banking secrecy under fire, the Swiss have also agreed to process requests by the U.S. seeking information from banks besides UBS about account holders suspected of evading U.S. taxes.

“This announcement today should send a signal, no matter what institution you are with, the IRS is willing to pursue both the institution and the individual,” IRS Commissioner Doug Shulman told reporters ...

The accounts were at one time worth $18 billion, Shulman said, though he could not provide a current figure.

U.S. authorities would not name any other foreign banks being probed, but the IRS is expected to use the Swiss deal as a template to pursue further prosecutions.

“The IRS is now gaining institutional skill and knowledge in how to pursue these types of cases and they are going to use that. This is, I believe, the beginning and not the end,” said Peter Hardy, a former federal prosecutor and specialist in white-collar crime at Post & Schell in Philadelphia.

The UBS dispute had strained relations between the United States and Switzerland and challenged the latter’s jealously guarded bank secrecy laws. The deal may add steam to a global effort among cash-strapped governments to crack down on tax-evading jurisdictions. But the settlement could help UBS, the world’s second-largest wealth manager, restore an image that has been battered by the financial crisis.

UBS said the Swiss government was exiting its 6 billion Swiss franc ($5.6 billion) stake, with the shares to be placed with institutional investors. ...

UBS Relief

UBS Chairman Kaspar Villiger said the tax agreement helps resolve one of UBS’s most pressing issues. “I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service.”

In February, UBS agreed to pay $780 million and disclose about 250 client names to settle a criminal probe by U.S. authorities. One former UBS banker testified that he smuggled a client’s diamonds into the United States in a tube of toothpaste.

[The] deal effectively ends a separate civil lawsuit by U.S. authorities that sought up to 52,000 account names. There was no further monetary penalty.

“It is good to get this out of the way but the confidence of a lot of clients has been compromised so I am not sure we will see inflows return in Q3. It will take time to recover reputation from this,” said Jaap Meijer, an analyst at Evolution Securities in London.

Other Swiss banks are fretting that the U.S. taxman’s spotlight may now fall on them. The Wall Street Journal reported ... that more European banks have been identified in the U.S. tax probe, including Switzerland’s Credit Suisse, Julius Baer, Zuercher Kantonalbank and Union Banque Privee (UBP).

Taxpayers Urged to Come Forward

Switzerland may claim its banking secrecy remains intact, but some private bankers say it is no longer a selling point for its banks, which will need to offer other skills like wealth management and legacy planning to attract clients.

“The majority of assets in Swiss private banks are from European Union citizens,” said David Williams, an analyst at Fox-Pitt Kelton in London. “I think it won’t be long before we see action from the European Union along similar lines.”

The revised treaty between the U.S. and Switzerland would allow action in the case of “tax fraud and the like” in the UBS case, the Swiss government said. Precise details will be published 90 days after the agreement comes into force.

The U.S. government retains the right to go back and use a summons to collect the names, which roughly equal the number of accounts, if the settlement process fails, said IRS chief Shulman.

Shulman said notices from UBS to clients would go out in stages, but warned U.S. citizens to come forward now. “Once the Swiss government turns over names, all bets are off,” Shulman said, noting these clients could face civil and criminal prosecution.

Until September 23, U.S. citizens can come forward and declare accounts, pay fines and in general avoid criminal prosecutions.

Under a temporary amnesty program in effect until September 23, U.S. citizens can come forward and declare accounts, pay fines and in general avoid criminal prosecutions.

Taxpayers who turn themselves in voluntarily pay all unpaid taxes plus interest, pay 20% of the amount of tax that was underpaid over the past six years, and a penalty of 20% of the highest value of that account over six years.

Officials said taxpayers face much harsher punishment if they are discovered by the IRS. “You can end owing more than is in the account, when you add up all the liabilities,” said an IRS official who was not authorized to be named.

The UBS case has boosted the amnesty program. The agency saw about 400 people come forward during one week in July compared to about 100 during all of 2008 alone.

Swiss Government Said to Consider UBS Stake Sale After Tax Deal

The Swiss government will probably sell its stake in UBS AG in the days following the settlement of a U.S. lawsuit that sought data on the bank’s American clients, two people familiar with the matter said.

The Swiss and U.S. governments, which initialed an accord on the tax case August 12, may publish details of the final agreement as soon as tomorrow, said the people, who declined to be identified because no announcement has been made. The sale of the UBS holding is likely to occur by the end of the month, one of the people said.

Swiss Finance Minister Hans-Rudolf Merz has said he aims to sell the stake in UBS as quickly as possible and at least recoup the government’s 6 billion-franc ($5.6 billion) investment, without destabilizing the bank. Settlement of the U.S. lawsuit, which sought disclosure of as many as 52,000 accounts, removes a risk to UBS and provides an opportunity for the state to exit, the people said.


Liechtenstein will start asking some banking clients if their tax status is legit – but it will not sell them out.

In an quirky and interesting development, Liechtenstein has agreed that it will reveal its UK-resident account holders to the UK government by 2015, but not before giving those account holders a chance to move on if they want to take their chances in another jurisdiction. The UK’s carrot to those account holders is an amnesty with a rather modest penalty if they come clean with HM Revenue & Customs. This leaves open the possibility of UK offshore account holders in any jurisdiction to move their assets to Liechtenstein and then confess.

The upshot is that Liechtenstein keeps its secrecy reputation more or less intact, as there is no reporting to HMRC without first giving the client the option to avoid having his or her cover blown. Liechtenstein also has the chance to gain business via clients who move assets there to access the low amnesty penalty and then stay on for good.

If you are a wealthy Brit, you will soon have one less place to hide your money from the prying eyes of the taxman. The U.K. government and Liechtenstein have just forged an agreement that marks one the most significant developments in the crackdown on tax evasion since the G20 event in London hyped up the issue.

The tiny alpine tax haven will start identifying British residents with a bank account or registered foundation (trust) in the principality, contact them and let them know that they are expected to be tax compliant within the United Kingdom. Liechtenstein said ... that it was introducing a “five-year taxpayer assistance and compliance program.”

Liechtenstein’s prime minister, Klaus Tschutscher, and the financial secretary to the U.K. Treasury, Stephen Timms, signed an agreement ... on “due process for past and future tax claims,” the principality said.

“It is a bit tacky to say, but this is a win, win, win situation,” said Max Hohenberg, a spokesman for the government of Liechtenstein. He explained that Liechtenstein, whose banks manage $165 billion of assets from around the world and maintain a cloak of strict secrecy, would soon pass a law requiring all of its financial institutions to contact clients who were British residents and ask them for documentation to prove that they are in communication with Britain’s HM Revenue & Customs department (the country’s equivalent to the U.S.’s IRS).

If the client can provide the documentation and prove that the British government is aware of their tax status, then the bank can continue with its relationship with the client. If the client cannot, or does not want to, the bank will notify them that they have until 2015 to find another offshore location to put their money. Once 2015 comes around and the client has not budged, the Liechtenstein bank will close their account or force the client to pay some sort of penalty, details of which have yet to be written into the country’s legislation.

Key to this, and to Britain’s ability to get Liechtenstein to agree to help it in this way, is that Liechtenstein will not be required in any instance to hand over names of the clients to the United Kingdom. “The British authorities agreed to this central premise that we will not sell out our clients, period,” said Hohenberg, adding that banks in Liechtenstein could well help their clients make arrangements to move their money to another offshore locale before the 2015 deadline.

Herein lies the loophole for any Brits avoiding taxes with Liechtenstein’s help. They have plenty of time to bail out, and if they do, perhaps by moving their money somewhere like Singapore, there will be no danger of Liechtenstein passing their details on the United Kingdom.

Clients of Liechtenstein banks will pay a penalty of only 10% of the total tax that they owe if they come clean with the British government.

But the United Kingdom is betting that its lenient punishment for coming clean will persuade tax evaders to identify themselves: As well as backdating and paying any unpaid tax, clients of Liechtenstein banks will pay a penalty worth 10% of the total tax that they owe if they identify themselves to the British government.

Meanwhile, Liechtenstein is also betting that it has created an avenue to amnesty from the British government, which will attract more wealthy individuals to move their money from other offshore locations to its principality. “The trend we have been observing here is moving towards greater transparency in tax matters,” said Hohenberg, who says that although the country is losing its ability to help hide money from the British taxman, it still offers “stability,” a history of private banking experience and the ability to use legal constructions like the Liechtenstein foundation.

Getting Liechtenstein to agree to this sort of measure has been a gradual process. In March, it agreed to relax its bank secrecy laws by being more cooperative with other tax authorities when requested. Then new regulations required its banks to know who its account holders were, rather than just list them as numbered accounts.

The Organization for Economic Cooperation and Development, which counts Liechtenstein among its internationally blacklisted tax havens, said Tuesday that the agreement “shows that the era of bank secrecy as a shield for tax evaders is coming to an end.” It added that it hoped the initiative would “serve as a model for other countries.” ...

One step towards establishing Britain’s agreement with Liechtenstein as a model could take place when it comes up for discussion at the OECD’s Global Forum on Transparency and Information Exchange, which guides the OECD’s work in the area of tax evasion. That takes place in Mexico on September 1-2.


In the biggest case of “identity theft” yet, a man has been accused of stealing 130 million debit and credit card numbers. The hackers took advantage of a pretty standard security hole to gain access to the numbers. As the problem is with the database management system, card holders can only try to contain the damage after the fact. The standard practices are suggested below: Consumers should check their statements from the card issuer or bank regularly and report any suspicious transactions.

In general, how secure is your card information? An accompanying article addressing that question is here.

Officials say it is the biggest case of identity theft in American history. They say Albert Gonzalez, 28, and two unnamed Russian co-conspirators hacked into the payment systems of retailers, including the 7-Eleven chain.

Prosecutors say they aimed to sell the data on. If convicted, Mr. Gonzalez faces up to 20 years in jail for wire fraud and five years for conspiracy. He would also have to pay a fine of $250,000 (£150,000) for each of the two charges.

“Standard” Attack

Mr. Gonzalez used a technique known as an “SQL injection attack” to access the databases and steal information, the US Department of Justice (DoJ) said. The method is believed to involve exploiting errors in programming to access data.

Edward Wilding, a fraud investigator, told the BBC that this method was “a pretty standard way” for fraudsters to try to access personal data. He added that this case probably “involved extremely well researched, especially configured codes, not standard attack codes downloaded from the internet.”

Mr. Wilding said there was little consumers could do to protect themselves against this kind of fraud. Internet and telephone transactions using credit cards were most vulnerable, he said, though added it was a failure of corporations, not customers.

Michelle Whiteman, from anti-fraud organisation Financial Fraud Action UK, said that consumers must check their bank statements regularly and flag up any suspicious transactions to their bank.

She said that online, telephone and mail order fraud were on the increase, along with fraud committed abroad on UK cards, according to figures released in March. But she stressed that any victim of fraud would “always be refunded in full.”

Mr Gonzales’s corporate victims included Heartland Payment Systems – a card payment processor – convenience store 7-Eleven and Hannaford Brothers, a supermarket chain, the DoJ said.

“We are pleased that the authorities have aggressively pursued this case to be in a position to bring an indictment against the alleged perpetrators of the crime,” said Michael Norton, spokesperson for Hannaford Brothers.

Meanwhile, 7-Eleven said the attack affected cash machines operated by a third party inside its stores, and had lasted for 12 days in 2007.

According to the indictment, the group researched the credit and debit card systems used by their victims, attacked their networks and sent the data to computer servers they operated in California, Illinois, Latvia, the Netherlands and Ukraine. The data could then be sold on, enabling others to make fraudulent purchases, it said.

Mr. Gonzalez, who had once been an informant for the U.S. Secret Service helping to track hackers, is already in custody on separate charges of hacking into the computer systems of a national restaurant chain and eight major retailers, including TJ Maxx, involving the theft of data related to 40 million credit cards. Mr. Gonzales is scheduled to go on trial for these charges in 2010.

This latest case will raise fresh concerns about the security of credit and debit cards used in the United States, the BBC’s Greg Wood reports.


Cameras are becoming what computers already are: cheap, ubiquitous, powerful and utterly transformational.

We have explored the ubiquity of videos overseeing areas used by the public in these pages in the past. The surveillance state is enabled by cheap cameras and data storage. There is no turning back from the 1984 cum Brave New World we find ourselves in.

Forbes technology editor Lee Gomes expresses it: “There are now a billion digital cameras, counting the ones in mobile phones. They are chronicling everything about life on Earth, from birthday parties in Topeka to street protests in Tehran. Many more are on the way.” The Tehran reference indicates that cheap cameras are not a one-way facilitator of the surveillance state: The watchers are more easily watched, and their propaganda spiels are more easily counteracted by transmitted counter-evidence.

Technophile Gomes explores where the technology is taking us. Lots of interesting and productive uses for cameras are, no doubt, on the way ... in the voluntary exchange private domain, anyway.

The world of photography, both video and still, is undergoing the sort of revolution that computers went through at the dawn of the PC era, and for the same reason: Semiconductors get smaller. The result is that cameras are becoming what computers already are: cheap, ubiquitous, powerful and utterly transformational. There are now a billion digital cameras, counting the ones in mobile phones. They are chronicling everything about life on Earth, from birthday parties in Topeka to street protests in Tehran. Many more are on the way.

Any sort of camera has two parts: an optical component, like a lens, that brings in light from the outside world, and then a sensor that records the light. In the predigital age that sensor was a piece of film. In digital cameras the lens stays essentially the same, but the film is replaced by a silicon chip that converts light into a grid of pixels, ones and zeroes that get saved to memory.

The silicon chips used in cameras have benefited from the same cheaper-smaller-faster rules that govern all of electronics. The quarter-inch-square chip that a few years back could store a megapixel, or a million points of light, now has a resolution 10 or 15 times that. In fact, engineers say they cannot make chips much denser than they already are, because the width of each pixel is approaching the wavelength of a beam of light.

Advances in electronics in the last 10 years would have been for naught had there not been comparable advances with optics.

Something similar is happening in front of the sensor, in the lens. Optical engineers say that advances in electronics in the last 10 years would have been for naught had there not been comparable advances with lenses.

Researchers at Carl Zeiss, the famous German lensmaker, say that because of improvements in manufacturing and materials, a fingernail-size mobile camera lens that would have cost several thousand dollars to make a few years ago can now be made for a few dollars. At Zeiss they are rethinking some of the very basics of a lens, such as its shape. Rather than using the familiar concave surface, engineers there are experimenting with a lens whose surface resembles a Mexican sombrero. Early indications are that it might help eliminate certain common distortions.

A goal for lensmakers is to ultimately eliminate the distinction between sensor and lens.

A goal for lensmakers is to ultimately eliminate the distinction between sensor and lens. OmniVision, a Silicon Valley sensormaker, is experimenting with “wafer-level optics,” which fuse a thin lattice of tiny lenses directly onto the silicon sensor. The result would be, literally, a camera on a chip, one that is capable of recording video as easily as still images.

So far all these advances represent an evolution of the traditional camera, which aims to capture as high resolution an image as possible with as much fidelity to nature as the device can manage. But a new field, called computational photography, is pushing picture-taking in an entirely new direction, using the processing power of a computer to make photographs that are “better than real.”

In some cases this might be for a completely utilitarian reason. Fredo Durand of the Massachusetts Institute of Technology’s electrical engineering department, says that the rear-view cameras now found in cars suffer from “barrel distortion,” in which parallel lines appear to be bending toward each other. Software built into the camera system could correct for that. It could also adjust for lighting so that objects in a shadow are just as visible as those in direct light.

The next step in computational photography is for cameras to cut many of the ties to the world as we traditionally see it. Ramesh Raskar of the MIT Media Lab imagines a future camera system that captures all of the available optical information about a scene – a room, say – and then allows the “photographer” to render any view of the scene that is desired, in much the same way that an architect working at a computer-aided-design station can draw a computerized house from any perspective.

Cameras will be able to perform that sort of magic. They will, of course, be so cheap that they will be everywhere. Expect to start seeing cameras in as many places as LED displays. Some mobile phones already have two of them, one forward, one back. Microsoft recently proposed a camera-based videogame controller that allowed users to control a game just with hand motions. There will be many more cameras in cars; some say as many as 18 or 20, including half a dozen in a ring on the roof, providing a panoramic view that is stitched together by software and then presented to the driver via a dashboard monitor.

The future, if not televised, will at least be videoed. Get ready.


Money, it’s a gas ...

We are fair-sized fans of Pink Floyd’s library running from 1973’s Dark Side of the Moon to 1979’s The Wall; but despite almost a decade of covering a litany of greed and amoral money-grubbing in our two W.I.L. digests, it has never heretofore occurred to us to quote or otherwise reference the rock group’s classic song “Money.” Well this article did it. Congratulations, corporate America. And a big assist to – who else? – the U.S. federal government.

For the somehow uninitiated, here are the relevant lyrics:

Money, get away.
Get a good job with good pay and you’re okay.
Money, it’s a gas.
Grab that cash with both hands and make a stash.
New car, caviar, four star daydream,
Think I’ll buy me a football team.

Money, get back.
I’m all right Jack, keep your hands off of my stack.
Money, it’s a hit.
Don’t give me that do goody good bullshit.
I’m in the high-fidelity first class traveling set
And I think I need a Lear jet.

Money, it’s a crime.
Share it fairly but don’t take a slice of my pie.
Money, so they say
Is the root of all evil today.
But if you ask for a raise its no surprise that they’re
Giving none away. ...

~~ Roger Waters, 1973

Cynical, yes – we are talking the early 1970s, as the post-Age of Aquarius reaction set in – yet by all indications things have gotten worse in the ensuing 3 1/2 decades. Human wiring facilitated by access to instruments of force with little consequence in using them is not a pretty thing.

Veteran financial columnist Gretchen Morgenson of the New York Times summarizes a study made in pay practices by 191 of the U.S.’s largest companies. “Enlightenment remains a long way off,” she dryly notes. “In other words, meet the new pay, same as the old. ... Instead of seeing a greater reliance on long-term incentive programs ... changes in these companies’ plans made short-term incentive pay a bigger part of the compensation pie.”

About 70% of the the analyzed companies made some shift in their compensation structure this year. The changes “surprised” James Reda, an independent compensation consultant who conducted the study. Several changes showed some sensitivity to the revulsion towards excessive compensation, e.g., fewer trips on the company jet, but in general the changes increased the emphasis on short-term over long. “And pay for performance remains more mantra than practice.”

This may be sheer greed momentum left over from the bubble era, or rats making off with what they can before deserting a sinking ship. Whatever the story, corporate insiders are grabbing that cash with both hands and making a stash. And thanks to the government’s “protection” of shareholders, which in reality is protection of managements, shareholder remedies to counteract penalize the corruption are too expensive to be effective. At root this is just another manifestation of corporate crony “capitalism,” i.e., fascism.

With outsized and corrupting corporate pay packages under scrutiny, you might think that companies would be rushing to tamp down their compensation plans. Making sure that pay actually rewards long-term performance, for example, seems a fairly obvious way to allay shareholder fears that managers are lining their pockets rather than safeguarding their companies.

But a study of changes made in pay practices by 191 of the nation’s largest companies this year shows that where pay is concerned, enlightenment remains a long way off. In other words, meet the new pay, same as the old.

The study was conducted by James F. Reda & Associates, an independent compensation consultant in New York, and it looked at proxy filings issued by almost 200 companies in the first half of 2009. The firm analyzed changes these companies made to their pay plans that take effect this year.

The biggest shock? Instead of seeing a greater reliance on long-term incentive programs, the Reda report found that changes in these companies’ plans made short-term incentive pay a bigger part of the compensation pie. Let me say that again: The plans – despite the calamities that short-term profiteering has visited on our economy – made short-term incentives a bigger component of compensation.

Last Friday (August 14), troubled financial companies relying on the taxpayers’ dime had to deliver details of their top executives’ compensation packages to Kenneth Feinberg, the government’s so-called pay czar. It will be interesting to see whether Mr. Feinberg finds the same short-term incentive skew in those pay packages that Mr. Reda did in his study.

“If you were going to encourage long-term thinking and behavior, you would reduce short-term pay, but companies have in fact reduced the long-term programs,” Mr. Reda said. “This is counter to the direction suggested by the United States Treasury, academics and other expert advisers regarding ways to mitigate risk.”

Another troubling finding in the Reda study was an increased use of restricted stock awards that are not performance-based. The awards simply vest over time.

Finally, the study found no significant decline in the use of so-called tax gross-up deals, a shareholder-unfriendly arrangement under which companies foot the bill on taxes that executives owe on their munificent pay packages.

Changes to pay practices were common this year: About 70% of the analyzed companies disclosed making some shift, Mr. Reda said. Almost 60% of the analyzed companies made what he considered to be major changes to their pay plans. But the nature of those changes surprised him.

“I was expecting that a lot of companies would be changing the payouts from cash to stock and then restricting the stock for three to five years,” he said. “Or paying out half of the bonus in cash and half in stock that must be held for three years. Those would be helpful changes, but I didn’t see any of that.”

Several pay policy changes showed some sensitivity to shareholder concerns about excessive compensation. For example, 43% of the companies making changes to their pay said they had eliminated merit increases, while 15% said they had reduced retirement benefits or eliminated tax gross-up payments on perquisites like insurance policies or use of jets. Some 13% said they froze or reduced base salaries and 4% reduced the benefits that would accrue to a chief executive if the company he or she oversaw changed hands.

Here is another plus: Some companies tightened up performance measures that must be met before incentive pay is dispensed. For example, 10 companies that changed their short-term incentive pay structures added profit or cash-flow requirements to performance pay hurdles. And in long-term performance programs, several companies added capital efficiency measures to their benchmarks. These included return on equity and return on invested capital.

But the overall message from the study is that in executive payland, real change comes exceedingly slowly. And pay for performance remains more mantra than practice.

But the overall message from the study, Mr. Reda said, is that in executive payland, real change comes exceedingly slowly. And pay for performance remains more mantra than practice.

Mr. Reda said he suspected that the increased reliance on short-term incentive pay that he found was a result of the precipitous declines in many of these companies’ share prices. Indeed, he found that the greater the drop in a company’s stock price, the more likely that its pay program was changed.

There were a variety of changes made to incentive pay that wound up skewing companies’ total packages toward short-term performance. First were the adjustments made to long-term incentive grants, like decreasing the value of awards or dispensing the same number of shares regardless of a decline in their value.

Among short-term incentive programs, some companies moved to discretionary plans, widened payout ranges or lowered performance hurdles.

The end result was a greater reliance over all on short-term incentive pay. And that invites riskier behavior among executives, Mr. Reda said.

With more than 20 years of executive pay analysis under his belt, Mr. Reda can offer a historical perspective on how the mix of compensation has changed over the years. In his view, leverage in compensation – where incentive pay far outweighs salary – has ballooned. And the opportunity for executives to tap into that leverage has vastly increased the risk in pay plans.

“Corporate America needs to deflate their compensation packages because with higher leverage comes higher risk,” Mr. Reda said.

Come hell, high water, financial crisis or stock market collapse, the executive pay grab goes on.

Comparing today’s common practices with those of his early days in the business is revealing, he said.

“When I first got in this business in 1987, a typical C.E.O. would have a short-term incentive opportunity of 60% of salary, and for the long-term, a good one would get two times salary,” Mr. Reda said. “If you do the math, the salary was equal to about 30% of the total compensation package. Today, it’s about 10%. So over the last 20 years or so the leverage of these compensation packages has increased dramatically.”

Compare these figures with those paid out in 2008. The typical short-term incentive pay for a chief executive was 200% of salary, while long-term incentives accounted for eight times salary.

“In both cases the incentive pay more than tripled,” Mr. Reda said. “Have people changed that much in 20 years that you need to throw these huge outsized incentive bonuses at them to get them to work?”

Come hell, high water, financial crisis or stock market collapse, the executive pay grab goes on. Clearly, if shareholders thought the economic downturn would result in more sensible pay packages, they’ve got another think coming.


That which is about to fall deserves to be pushed.

Gary North ruminates on where the decreasing costs of spreading information will lead: “Soon, brains and insight will rule, not bank accounts and official accreditation by state licensing bureaus. The Establishments will all be in defensive mode. ... Truth will fragment. New paradigms will emerge from the competition. The quality of thought will improve when bank accounts are not major barriers to entry.”

His conclusion: “The gatekeepers can no longer control the flow of information. This has never happened in man’s history. Gatekeepers still control the gates. But the walls have holes in them. These holes are widening. ... When I think ‘Establishment,’ my mind goes back to Rocky III. Mr. T’s character tells Apollo Creed, ‘you’re going down.’”

Back in the early 1990s, I was told about a German economist with an American name: Paul C. Martin. He had written a book titled Paymaster Germany. Its thesis: Germany cannot send home its Turkish and other immigrants. They would break the German economy by pulling their money out of the country. Anyway, that is what my German contacts told me about the book. It has never been translated

Recently, I did a search for “Paul C. Martin.” I got a page. The #2 entry was a Wikipedia article on him. It is in German. You can find the page here.

There is an option available on the Google entry: “Translate this page.” I clicked it. Within a few seconds, I had the article in English. Wiki knew I read English.

The article is readable. There are some minor grammatical errors, but I can easily get the gist of it. The author’s books are listed in English.

Wikipedia is available in dozens of languages. It is replacing all other general encyclopedias. The division of labor is working.

If you find a Wikipedia entry with an error, you can correct it using the “Edit” feature. I do this from time to time. I do not get paid, but I want things right. This mentality is widespread among Wiki users. The articles keep getting better.

If readers of encyclopedias were evil-minded, they would deface the entries by adding lies. Yet this is not done often, and the errors are found and corrected rapidly.

Ideological wars do break out. Then the page is locked by a committee. You have to apply to update the entry. If there were many such disputes, it would be impossible to sort them out. There would not be enough volunteers to serve on the committees.

The Wikipedia system relies on volunteers. It works. It relies on honest intentions. This usually works. It relies on digital translation. This works well enough to allow the transmission of basic information – more than most readers can remember. Our minds are the weak links now, not the translation software.

The translation software will get better. In 20 years, it will probably rival the skills of a human translator who did not learn both languages as a bilingual child. It may take less time than 20 years.

This will increase the division of intellectual labor. It will vastly expand our horizons. Already, we can find out what other nationalities think about such topics as the origin of specific wars.

The way we learn about history will change for the better. Revisionist history will spread. The Establishments of all nations will suffer.

Wikipedia has dramatically increased the world’s intellectual division of labor by providing software and open access posting. It is self-policed. This lets decentralization find a central location on the Web. Type in any topic and the type “Wiki.” Click. You will find it on Google instantly.

Where did the creator of Wikipedia get this idea on the intellectual division of labor? From a dead economist, F. A. Hayek, who write a 1945 article on “The Use of Knowledge in Society,” one of the most important articles in the history of economics. Who told him about Hayek? Mark Thornton, staff economist at the Mises Institute. What organization makes spectacular use of the Web through posting free books in PDF? The Mises Institute.

Neither Google nor Wikipedia existed a decade ago.

Then there is the sheer volume of local historical materials. Think of American Civil War history if every small-town newspaper were on-line. Researchers could compare accounts of battles. The same goes for archives of letters.

On the top floor of the library at Louisiana State University at Shreveport, there is an astounding collection of antiquarian books. It was assembled by an eccentric millionaire. There is a full-time curator. I have seen this collection. It is mind-boggling. There is a large section on Civil War memorial books written by specific army units. Yet almost no one knows of this collection. In effect, it is closed to the general public because of a lack of publicity.

Let me provide another example. A prominent university in the South has the largest collection of Ku Klux Klan material anywhere. I was informed by a far-left Ph.D. historian whose grandfather was the first professor of psychology at that university in 1918 that if you were not a Klan member, you were not hired to be on the faculty. This is hearsay. I happen to believe it. He told me about the KKK collection. Almost no one knows it is there, except for Klan members who are interested in historical scholarship. This is a limited audience. The library does not publicize its existence. Why not? Because questions might be raised about the origin of the collection. Political incorrectness affects libraries.

On-line Libraries

Collection by collection, Google will scan tens of millions of books and post them. Probably 80% of the world’s pre-1923 books will be online in 50 years – maybe less. All it will take is manpower and cheap scanning machines, which keep getting cheaper.

It is possible to have a book scanned and converted to a Google-searchable PDF file for 16 cents a page if you allow the outfit to cut the spine of the book. It is 36 cents if you do not allow this. You can set up a website for $10 a year for domain name hosting, plus an extra $10 if you want your identity as the owner concealed from snoopers. Use Hostgator or Hostmonster to host an unlimited number of domains for $8 a month. You can post PDFs.

In every language these books will be online. They will eventually be translated digitally “on the fly.”

Then will come archive collections of letters. They will take longer to convert to searchable typeset words. But that day will come.

The cost of writing history will fall. It is costly to do research in a major research library. You must pay for the plane fair, overnight housing, and a rental car. This can easily cost $300 a day – or three times that in cities like London or Berlin. Only a few people can afford this, and only for short visits.

If the library’s pre-1923 books and archive materials were online, anyone could do it at home. The little guy would be able to compete.

Say that you want access to all academic journals. These are all on-line. It is expensive to access them. You must be an enrolled student or a faculty member to access them. Solution? Hire a student intern who has on-line access to the library. Then have the student look up the articles you want to read and send PDFs to you. Or just use his access code to do your own research. “That’s cheating,” says the librarian. But taxpayers pay for the library. I suffer little guilt.

Every time you find a Google link to a locked article on JSTOR, you contact your intern. Presto. Unlocked!

Some interns work for free to gain college credit. Do I have access to such an intern? To ask this question is to answer it.

Soon, brains and insight will rule, not bank accounts and official accreditation by state licensing bureaus. The Establishments will all be in defensive mode.

It is happening today. This is going to increase.

Truth will fragment. New paradigms will emerge from the competition. The quality of thought will improve when bank accounts are not major barriers to entry.

The Gatekeepers’ Dilemma

The gatekeepers can no longer control the flow of information. This has never happened in man’s history. Gatekeepers still control the gates. But the walls have holes in them. These holes are widening.

The gatekeepers control accreditation. They no longer control content except where it is very expensive to do primary research, such as nuclear physics. In the social sciences and humanities, it is just about over.

When I think “Establishment,” my mind goes back to Rocky III. Mr. T’s character tells Apollo Creed, “you’re going down.”

If you find something worth posting, post it. Call this “post-it notes.” It beats armed revolution every time.

Make a free online YouTube or Blip.tv course out of your favorite controversial topic. Imitate Salman Khan: KhanAcademy.org. (Note: Khan graduated from M.I.T. and the Harvard Business School.) He did it with these low-cost or free tools.

In short, if you find something evil that wobbles, push it.


True Catastrophes

World War I and the 1929 stock market crash led to the 1930s catastrophe and people flocking to alternative ideologies like communism, fascism and Nazism. Thankfully we will not be seeing a repeat of that.

These are difficult times, says Steve Forbes, but we have seen worse. Keep your perspective.

95 years ago this summer the first World War began. 80 years ago this fall the 1929 stock market crash raised the curtain on the Great Depression. These two events created the totalitarian forces – communism, fascism, Nazism – that nearly destroyed Western civilization. So be thankful that our current economic crisis looks to be abating – the recovery will not be robust, but we will not repeat a 1930s-like catastrophe – and that people will not be flocking to alternative ideologies.

World War I stood out for its millions of seemingly in vain battlefield deaths. But the biggest tragedy of that war was that it fundamentally undermined the faith of tens of millions of people in the liberal, moral, economic and political values that formed the foundation of the Western World. After WWI numerous democracies rose up but just as quickly fell to dictatorships. The list of failed democracies between the world wars is stunning: Germany, Japan, Italy, Poland, Spain, Portugal, Romania, Hungary, Lithuania, Latvia, Estonia, Bulgaria, Greece, China, Yugoslavia, Argentina, Brazil, Bolivia et al. During the 1930s millions of people saw credible alternatives to traditional democratic liberal values in the ghastly ideologies reigning in Berlin, Rome and Moscow. Thankfully, there are no such potent alternatives today. North Korea? Cuba?

Islamic extremism, which grew out of the same totalitarian virus and thus is laden with Marxism and nihilism, attracts but a fraction of the adherence in the West that communism and fascism once did.

These are difficult times. But we have seen worse. In fact, there are encouraging trends. Despite the Obama Administration’s attempts to turn us into a hard-left nation, the American people in recent weeks have made it clear they want no part of that. Antispending, pro-tax-cutting Republican candidates in New Jersey and Virginia will likely win those statehouses in November, and next year Republicans – who are rediscovering their principles – will make good gains in Congress.

What to Do When They Come for You

Will Grigg found himself face-to-face with two representatives of the Nanny State, who said they were responding to an anonymous “child endangerment” complaint filed with the Child Protective Services. Knowing where such encounters can end up, Grigg refused them entrance to his home. The investigator left without complaint but advised Grigg, Terminator style, “I’ll be back.”

What next? Grigg had a prearranged plan, and transported his kids to a friendly safe-house in another county. He told his kids not to call home, and to await instructions.

Fortunately, things turned out OK. The CPS investigator was not some hard-ass and Grigg’s firm but polite behavior towards her resulted in no animosity being generated. So it worked out this time, with Grigg’s family. But plenty of terrible things have happened to similar families because someone filed an anonymous complaint.

A good example of the value of preparation.

“Grab some clothes and get into the van, now.”

For an instant, that directive, and the tone in which it was issued, had the opposite of its intended effect: Korrin and our five older children, momentarily paralyzed by shock, looked at me in alarm. There was something in both the tone of my voice, and the expression on my face, that was new and a little frightening. None of them had seen my “game face” before. They were seeing it now.

Just seconds earlier, Korrin and I had been confronted on our doorstep by two very nice, well-dressed women who informed us that an anonymous “child endangerment” complaint had been filed with the Child Protective Services.

One of the visitors was a social worker we have known for several years, and consider a friend. The other was a stranger who introduced herself as a CPS investigator. She intended to inspect our home and speak with our children.

After being summoned to the doorstep, I had ushered our children into our house and closed the door behind me. Short of being removed by force, there was no way I was going to permit a CPS investigator to have access to our home as long as our children were vulnerable to government abduction. “You seem like a conscientious and well-intentioned person,” I quietly told the investigator, “but this is an adversarial situation, and I can’t allow you to have access to my home in the absence of a warrant, and until I’ve consulted with legal counsel.” ...

High U.S. State Corporate Taxes Pushing Down Wages

The burden of corporate income taxes ultimately falls on labor because, in today’s increasingly global economy, capital is mobile but labor is not.

A new report by the Tax Foundation finds that states with high corporate income taxes have likely depressed their workers’ wages over the long term, while states with low corporate taxes have boosted worker productivity and real wages.

The Tax Foundation study finds that for every $1 rise in state and local corporate tax collections, real wages fall by $2.50 five years later. The reverse is also true, with wages rising $2.50 for every $1 reduction in state and local corporate income taxes.

“These findings are not only consistent with a growing body of research on international corporate income taxes and wages, but they get to the heart of a longstanding political argument on business taxation,” said Tax Foundation Senior Fellow Robert Carroll.

“Raising corporate income taxes has been viewed as an effective way for governments to push the tax burden onto the people who can best afford it, but this assumes that capital income, which is earned disproportionately by those with higher incomes, is indeed bearing the burden of the tax. We now see, however, an increasing amount of evidence suggesting that this is not the case,” he observed.

According to Carroll, the finding that the burden of corporate income taxes ultimately falls on labor supports previous research indicating that corporate taxes are not borne by capital because, in today’s increasingly global economy, capital is mobile, but labor is not.

“This emerging research should give pause to state and federal policy makers who are attempting to increase the progressivity of the tax code by increasing corporate income taxes. If the tax is borne primarily by labor, such policy changes are not likely to increase the progressivity of the tax code,” the report concluded.